Merchant Account

A merchant account is a special type of bank account that allows businesses to accept debit and credit card payments. This bank account retains the money derived from the company’s sales for a short term, typically between 2 and 7 days. After this time interval the money is transferred to the merchant’s actual bank account where its business funds are stored.

Prior to obtaining a merchant account vendors are put through a credit risk assessment by the acquiring bank. It aims to test if the candidate of such an account is suitable to take debit and credit card payments.

Merchant Account Classification

There are two types of merchant accounts, which are classified depending on the means that merchants use to collect and process card information.

1.  Swiped or Cardholder Present (CP):

  • Retail Merchants: businesses that have a physical store or office where they offer face-to-face service and process payment by physically swiping cards through a point of sale (POS) -Terminal.
  • Wireless/Mobile Merchants: companies that process card payment in real-time, regardless of the customer’s location by means of a portable wireless terminal.

2.  Keyed or Cardholder Not Present (CNP):

  • Mail Order/Telephone Order (MOTO): vendors who take orders and collect card information over the phone, by mail, via fax, or through the Internet. Transactions are manually processed and are keyed using a terminal, payment gateway, POS system or software.
  • Internet Merchant Account (IMA): merchants who trade through a web site and collect payments online and in real-time using an automated system or payment gateway. In this type of transactions not only the cardholder is not present at the point of sale but neither is the merchant.

IMAs are offered by both banks and payment service providers (PSP). Indeed, an increasing number of people are getting this type of account through PSPs for the reason that they make the application process easier and faster to complete. It normally takes around 48 hours for a PSP to resolve whether they will grant the merchant an account or not. In contrast, due to the credit worthiness assessment that banks conduct in order to determine if a potential candidate is suitable to hold a merchant account, it generally takes them longer to make a decision. However, it is important to bear in mind that PSPs actually work in close cooperation with banks.

A feature common to MOTO and IMA is that as soon as an order is confirmed, the payment is charged and the product is handed over to the courier to proceed with the shipment.

Overall, these types of accounts diverge in two aspects, namely the accounts’ rules of usage and the transaction fees charged. Yet, merchants frequently have more than one account, each of a different type depending on the nature of its business.